Calibrating spatially distributed hydrological models in ungauged mountain basins is complicated due to the paucity of information and the uncertainty in representing the physical characteristics of a drainage area. In this study, an innovative method is proposed that incorporates the Budyko framework and water balance equation derived water yield (WYLD) in the calibration of the Soil and Water Assessment Tool (SWAT) with a monthly temporal resolution. The impact of vegetation dynamics (i.e., vegetation coverage) on Budyko curve shape parameter ω was considered to improve the Budyko calibration. The proposed approach is applied to the upstream Lancang-Mekong River (UL-MR), which is an ungauged mountain basin and among the world’s most important transboundary rivers. We compared the differences in SWAT model results between the different calibration approaches using percent bias (PBIAS), coefficient of determination (R2), and Nash–Sutcliffe efficiency (NSE) coefficient. The results demonstrated that the Budyko calibration approach exhibited a significant improvement against an unfitted priori parameter run (the non-calibration case) though it did not perform as good as fitting of the calibration by the observed streamflow. The NSE value increased by 44.59% (from 0.46 to 0.83), the R2 value increased by 2.30% (from 0.87 to 0.89) and the PBIAS value decreased by 55.67% (from 39.7 to 17.6) during the validation period at the drainage outlet (Changdu) station. The outcomes of the analysis confirm the potential of the proposed Budyko calibration approach for runoff predictions in ungauged mountain basins. © 2022 by the authors.